Tag Archives: CalPERS

California state payroll increased by $1 billion in 2017, twice as fast as previous year

Jerry Brown

California Gov. Jerry Brown is surrounded by unidentified SEIU workers after signing a bill creating the highest statewide minimum wage at $15 an hour by 2022 at the Ronald Reagan building in Los Angeles, Monday, April 4, 2016. (AP Photo/Damian Dovarganes)

No wonder the state wants half of the businesses’ tax-cut savings. Someone’s gotta fund the bureaucrats.

From Sacrament Bee: California’s state payroll – excluding its universities – grew by more than $1 billion last year, twice the rate of growth as the previous year, according to new figures from the State Controller’s Office.

The 6 percent growth rate was not unexpected. More than half of the state’s workforce voted on labor agreements early last year that included substantial pay raises. Money for the raises was included in the 2017-18 state budget.

The largest contract, for Service Employees Union Local 1000, included one-time bonuses of $2,500 for more than 95,000 state workers. That’s worth more than $235 million in total compensation for employees the union represents.

The California Department of Corrections and Rehabilitation saw payroll increase by $452 million, or 9 percent. The Department of Forestry and Fire Protection logged an $87 million, or 13 percent, increase in payroll as the state experienced a horrible wildfire season.

The Sacramento Bee’s state worker pay database has been updated with more than 250,000 civil service and California State University salaries for 2017. To search all state employee salaries, visit sacbee.com/statepay.

The number of state employees outside of universities earning more than $300,000 increased from 456 in 2016 to 709 in 2017, a rise of 56 percent. Those employees, however, still make up only a sliver of the state’s workforce.

Most of the highest-paid state workers outside of universities are doctors and dentists in the state prison system. The union for those doctors negotiated a pay hike of up to 24 percent over the next four years early last year. Prison health officials cited the difficulty of filling vacancies as a justification for the contract.

The highest-paid state worker outside of universities remains Ted Eliopoulos, chief investment officer of CalPERS. He earned about $867,000 last year, up from $768,000 in 2016.

CalPERS saw an 11.2 percent return on its investments in fiscal year 2017. That came as stock markets soared, with the S&P 500 increasing by 15.2 percent over the same period.

The state’s payroll fell during the recession a decade ago before stabilizing around 2012. It has risen since then.

Adjusted for inflation, California’s state payroll excluding universities was about 5 percent higher in 2017 than during 2008. The state’s population has grown about 9 percent over that period.


California tax board leader urged quick hirings to get state workers better pensions

jerome horton

Jerome Horton: Working hard for the taxpayer…

From Wikipedia: The State Board of Equalization (BOE) is a public agency charged with tax administration and fee collection in the state of California in the United States. The authorities of the Board fell into four broad areas: sales and use taxes, property taxes, special taxes, and acting as an appellate body for franchise and income tax appeals. The BOE is the only publicly elected tax commission in the United States. In June 2017, Governor Jerry Brown signed legislation stripping the Board of most of its powers.

Why did Brown do this? Again, from Wikipedia:

Each year, the Board spends at least $3 million on education events where elected member appear before their constituents. In 2016, it was revealed that Board Chairman Jerome Horton had spent $130,000 on designer office furniture, prompting criticism. Horton had been previously criticized over $731,835 in donations his wife’s organizations had accepted from companies with matters before the Board.

In March 2017, an audit by the California Department of Finance revealed missing funds and signs of nepotism, leading to calls for the governor to put the Board under a public trustee. In June 2017, the California Department of Justice began a criminal investigation into the members of the Board.

On June 27, 2017, Governor Jerry Brown signed into law legislation stripping the Board of its powers.  The legislation created two new departments controlled by the governor responsible for the Board’s statutory duties, the California Department of Tax Fee Administration and the California Office of Tax Appeals.

The Board still has its constitutional powers to review property tax assessments, insurer tax assessment, alcohol excise tax, and pipeline taxes. The Board will retain 400 employees, with the rest of its 4,800 workers being shifted to the new departments.

Jerome Horton has worked at the BOE for for over 20 years. Guess he has quite the shady background. Read about it here from this 2011 article about him illegally funneling money to a friend.

Par for the course for demorat politicians in California.

From Sacramento Bee (by Adam Ashton): The elected leader of a California tax agency urged its executives to speed hiring for a project in late 2012 so new employees would benefit from more generous pension plans, according to documents obtained by The Bee.

Emails show that Board of Equalization member Jerome Horton wanted the agency to quickly fill positions for a new customer service call center in Culver City during the fall of 2012 before less lucrative pension rules kicked in Jan. 1, 2013.

The documents show that the agency did not have office space for new employees. Horton, who was chairman of the board at the time, nonetheless wanted to bring on new employees for the call center and train them at other sites around Southern California. The agency ultimately hired 25 workers the last week of the year, with some of them assigned to the call center.

During the week of September 2012 that Gov. Jerry Brown signed a pension reform law, Horton wrote an email that read, “I would recommend that we do everything possible to excellerate (sic) our hiring process and assist our team members with retirement plans.”

That email and others were uncovered by auditors at the Department of Finance, who released a report earlier this year describing how elected leaders at the Board Of Equalization intervened in daily decision-making at the tax agency. The audit prompted lawmakers in June to strip the agency of most of its power and almost all of its 4,200 employees.

Until the Legislature gutted it this year, the Board of Equalization managed dozens of tax programs, collected about $60 billion a year in revenue and settled disputes between taxpayers and tax collectors.

The call center in Horton’s district stood out to auditors because they found that the five-member board that managed the agency never voted to open the site. Auditors wrote that Horton was “involved” in its creation and cited the call center as an example of an elected board member overstepping boundaries.

“The practice of individual board members intervening in the daily BOE operating activities creates inconsistencies in operations, breakdowns in centralized processes, and in certain instances result in activities contrary to state law,” the audit said.

Next week, the call center is scheduled to close. The department that the Legislature created to replace the Board of Equalization chose to consolidate the call center’s responsibilities with a larger customer service center in Sacramento.

The last two employees who worked at the Culver City call center will be reassigned to other offices by Monday, Department of Tax and Fee Administration spokesman Paul Cambra said. At some point, the new department plans to add staff at its primary Sacramento call center.

The documents that describe the Culver City call center’s creation shed light on a late 2012 hiring spree at the Board of Equalization, when 25 new employees started their jobs in between Christmas Eve and New Year’s Eve.

Ten of the hires reported for their first day of work on Dec. 31, 2012, securing the more generous pension plans that were phased out for new state employees a day later. A Board of Equalization spokesman previously told The Bee that several of the New Year’s Eve hires went to work at the Culver City call center.

Hiring spiked throughout California government in the holiday week of 2012, with people beginning public-sector jobs at triple the normal rate for the last week of the year, according to a Bee analysis of records from the California Public Employees’ Retirement System. The trend was especially pronounced at the Board of Equalization and at CalPERS.

Brown’s pension reform law rolled back some of the generous incentives lawmakers granted to public workers during the dot-com boom. As a result, public employees who started their jobs after Jan. 1, 2013 have to work seven years longer to retire with a pension that gives them 2 percent of their salary for each year service. Previously, most public employees could get that rate at age 55.

Although the Board of Equalization did not cast a vote on opening the Culver City center, documents show that Horton and the agency advanced it publicly. In November 2012, the agency published a press release announcing a job fair for the customer service center.

“What better gift to receive than a job for the holidays?” his 2012 press release read.

Horton’s messages to Board of Equalization executives in late 2012 show that he knew the agency did not have real estate for the new office. He pitched a proposal to place new workers in other offices for temporary assignments where they could learn from the agency staff members who worked for elected members.

A 2014 Board of Equalization report on the Culver City center said it opened and began taking calls on April 2, 2013.

Horton, who worked for the Board of Equalization for more than 20 years before going into politics, said the agency’s executive team approved the project and discussed its development with board members at different times in 2012.

“Although I have no authority over the hiring, training, or construction process, according to the administration, the agency followed proper protocol and obtained approval from (the state human resources department) to commence the hiring process and authorization to actually hire the employees in question,” he wrote in an email to The Bee.


California SEIU contract includes 9 to 19 percent raises for many workers

California Gov. Jerry Brown is surrounded by unidentified SEIU workers after signing a bill creating the highest statewide minimum wage at $15 an hour by 2022 at the Ronald Reagan building in Los Angeles, Monday, April 4, 2016. (AP Photo/Damian Dovarganes)

California Gov. Jerry Brown is surrounded by unidentified SEIU workers after signing a bill creating the highest statewide minimum wage at $15 an hour by 2022 at the Ronald Reagan building in Los Angeles, Monday, April 4, 2016. (AP Photo/Damian Dovarganes)

From Sacramento Bee: A proposed contract for state government’s largest union includes dozens of special pay raises for certain workers that could increase their salaries by as much as 19 percent next year, according to new details released this week by the bargaining units.

The biggest gains would go to financial experts working for departments like CalPERS, as well as workers with specialized training in competitive career fields.

Most actuaries next year would receive a 15 percent salary bump on top of the standard 4 percent raise that all workers represented by SEIU Local 1000 would gain. In general, they’re financial planners working for CalPERS who earn between $7,300 and $10,000 a month.

In total, the proposed SEIU contract would raise their salaries by 19 percent next year. Many vocational nurses would receive an 11.25 percent wage hike on top of the union’s 4 percent general salary increase.

Other job classifications, from tax auditors to environmental planners, would receive a 5 percent special salary hike next in addition to the general SEIU raise. Custodians, too, would gain 3 percent on top of the standard raise.

The state and its unions regularly conduct salary surveys, and special salary adjustments are intended to keep certain careers competitive with the private sector. A 2014 state salary survey showed that many SEIU workers had fallen behind their peers outside of state government.

Since then, the union and the state have studied how to offer better incentives for those high-demand workers.

SEIU Local 1000 Vice President Margarita Maldonado

SEIU Local 1000 Vice President Margarita Maldonado

“A lot of this came out of the state’s inability to recruit or retain” for competitive career fields, said SEIU Local 1000 Vice President Margarita Maldonado. “The work they do is really good quality work. As soon as (other employers) find out, (the workers) are getting a lot more money” and job offers.

SEIU Local 1000 members will vote on the contract between Jan. 4 and Jan. 17. It published the tentative agreement this week, and it has been hosting meetings for its members to learn more about it. The union’s advisory commission endorsed it last weekend.

SEIU Local 1000 was on the brink of a strike over the contract two weeks ago, arguing that its members deserved better than Gov. Jerry Brown’s initial contract offer. Brown had proposed a series of four annual raises of about 3 percent each, offset by rising employee contributions for retiree health care.

In broad terms, SEIU’s tentative contract looks similar to Brown’s proposal, although it delays and reduces the retiree health care contributions. It provides a $2,500 bonus this year, a 4 percent raise in 2017, a 4 percent raise in 2018 and a 3.5 percent raise in 2019.

Some of its members were angered when they saw that outline. One state worker even created a contract calculator online where SEIU members could compare Brown’s offer to the one SEIU negotiated.

But the new details reveal that thousands of SEIU members across a broad range of careers stand to gain significantly more money than the initial outline suggested. Maldonado characterized the base wage increase of 11.5 percent over four years as the floor of the agreement, with some workers gaining as much as 27 percent through 2019.

The California Department of Human Resources and the Legislative Analyst’s Office have not yet released an estimate regarding the contract’s total cost.


CalPERS post gain of less than 1% for latest fiscal year

Liberal logic: Investment gain well below official target?  We’re pleased and proud!

CalPERS exec Marcie Frost

CalPERS exec Marcie Frost

From Sacramento Bee: CalPERS reported a 0.61 percent gain in investments in its latest fiscal year, well below the big California pension fund’s official target.

The results are in line with expectations following a bumpy year in the stock market. A few weeks ago Chief Investment Officer Ted Eliopoulos told the Wall Street Journal that CalPERS essentially broke even for the year ending June 30.

CalPERS’ annual investment performance matters because a lackluster year increases pressure to raise contribution rates from state and local taxpayers. The 0.61 percent gain contrasts with the annual target of 7.5 percent, and follows a gain of just 2.4 percent the prior fiscal year.

In the past few years CalPERS has imposed significant rate increases on the state, local governments and school districts. The state’s annual bill rose by $600 million this year, to $5.4 billion a year. Besides dealing with lingering effects of the 2008 market crash, CalPERS also has cited longer retiree lifespans and the growing state and school districts’ payrolls. All told, CalPERS is about 76 percent funded, which means it has 76 cents available for every $1 in long-term pension obligations.

Another factor at play in the fund’s finances: CalPERS has said it expects investment markets to become increasingly uneven in the coming years and has implemented a plan to gradually reduce risks in its investment portfolio. That same plan is also expected to reduce its annual target of investment gains.

“We can expect a low investment return environment … in the coming years,” newly hired Chief Executive Marcie Frost said last week. “There are challenges ahead of us.”

Still, CalPERS officials said they were pleased with the latest results in light of the difficult investing climate. “Positive performance in a year of turbulent financial markets is an accomplishment that we are proud of,” Eliopoulos said in a prepared statement.

The fund lost 3.4 percent on its stock portfolio, which makes up the largest share of its $302 billion asset base. “Over half of our portfolio is in equities, so returns are largely driven by stock markets,” Eliopoulos said.

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Questions about California state retiree health benefits asked and answered

Unicorns are flying!

This chart illustrates how saving and investing for state retiree health benefits can save billions of dollars over time. The dotted line represents costs under the state’s current pay-as-you-go system. The solid line shows what happens when extra money set aside in a trust fund grows through investments and then is applied to retiree health benefits in about 30 years. Revised budget proposal, May 2015 Department of Finance

This chart illustrates how saving and investing for state retiree health benefits can save billions of dollars over time. The dotted line represents costs under the state’s current pay-as-you-go system. The solid line shows what happens when extra money set aside in a trust fund grows through investments and then is applied to retiree health benefits in about 30 years. Revised budget proposal, May 2015 Department of Finance

Sacramento Bee: It’s done – and it’s just beginning. The Legislature has approved the terms of new labor agreements for California state engineers and scientists that include contributions to their retiree medical benefits, extend how long new employees must work to vest in the program and, for the first time, lower the state’s share of cost for future retirees’ medical, dental and vision coverage.

With those contracts pending member ratification, the governor’s attention now turns the remaining unions with expired or expiring labor pacts. During a Senate committee hearing last week, administration officials acknowledged that Brown wants to bargain similar terms with the other groups.

The State Worker watched the Senate Budget and Fiscal Review Committee hearing and later spoke to Department of Finance staff, looking for answers to questions that blog users and Facebook and Twitter followers are asking. Here are some of your most common questions and the answers to them:

How does this work?

A: Assuming members approve the tentative agreements reached with Brown, the engineers and scientists would begin paying an incrementally increasing percentage of their pensionable pay into a retiree benefits fund starting July 1, 2017. The engineers’ contribution would top out at 2 percent on July 1, 2019, and the scientists’ contribution would top out at 2.8 percent on that same date. The state will match employee contributions dollar-for-dollar.

Why the different percentages?

A: The percentages meet what state-contracted actuaries have determined is appropriate to fund the benefits, given the demographics and wages of each group. Since the scientists earn less than engineers, their payment is a larger percentage of their wages.

How much might I have to pay into the retiree-benefits fund?

A: Generally speaking, actuaries figure most state employees need to kick in somewhere between 3 percent and 4 percent of pensionable pay to fund the benefit. Remember, however, that demographics play a role. Law enforcement officers, for example, will likely pay a higher percentage because they retire at younger ages. And this stuff has to be bargained unit by unit in the context of the state’s overall budget health, which always adds x factors to the equation.

My pension contributions have gone up in the last few years. Could that happen with the new retiree health contributions?

A: Yes. They also could decrease. As the state gathers real data and experience, future actuarial estimates could require higher or lower employer/employee contributions. Since the contributions are bargained and not legislated, they could change up or down in subsequent contracts.

Where will the money go?

A: Into the California Employers’ Retiree Benefit Trust. CalPERS is a third-party administrator of the fund, which has $4.4 billion in assets and serves about 460 local government employers. State maintenance workers, physicians, dentists and Highway Patrol officers are already paying ahead on their retiree health benefits, accounting for about $100 million in the fund.

CalPERS? Does that mean my retiree health benefits will be subject to the same political pressures and policy wrangling as my pension?

A: Unlike the pension fund it administers, CalPERS wields little power over the retiree benefits trust fund. CalPERS is essentially a third-party contractor managing the health benefits fund. It competes with Vangard, Fidelity and other financial services companies for the business.

Does this take care of the state’s long-term $72 billion unfunded liability for retiree health care costs?

A: Yes, but it will take up to 30 years. The new contributions will go into the trust fund and grow via investments. In the meantime, the state will continue paying the bills year-to-year as they come due. Because the state is prefunding future benefits, the unfunded liability will eventually stop growing and begin to shrink.

math is hard

Some day, about three decades hence, the trust fund money will kick in and presto! Virtually no more unfunded liability – assuming the actuaries hit their marks.

Of course, all this assumes governors, legislators and labor unions hold fast to the prefunding principle. Bargaining or legislation could change the rules of the game any time.

Governors have sometimes given raises to at least partially offset higher contributions to pensions. If that happens here, isn’t the retiree medical solution creating more trouble for the pension system by hiking wages that lead to higher pension payments?

It’s true that any wage increase ups pressure on the pension fund. But, as Finance budget analyst Eric Stern and Erika Li, the department’s assistant budget program manager, told the Senate committee on Friday, there’s not a clear dollar-for-dollar correlation between benefit contribution increases and pay raises, particularly over the last 10 years.

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California taxpayers have never paid more for public worker pensions, but it’s still not enough

kick the can down the road

LA Times: California taxpayers have never paid more for public worker pensions, but it’s still not enough to cover the rising number of retirement checks written by the state’s largest pension plan. Even before the stock market’s recent fall, staffers at the California Public Employees’ Retirement System were worried about what they call “negative cash flows.”

The shortfalls — which totaled $5 billion last year — are created when contributions from taxpayers and public employees who are still working aren’t enough to cover monthly checks sent to retirees. To make up the difference, CalPERS must liquidate investments.

With more than $300 billion in investments, the nation’s largest public pension fund is in no danger of suddenly running out of cash. But even its staff acknowledges in a recent report that despite fast-rising contributions from taxpayers, the pension fund faces “a significant amount of risk.”

To reduce that financial risk, CalPERS has been working for months on a plan that could cause government pension funds across the country to rethink their investment strategies. The plan would increase payments from taxpayers even more in coming years with the goal of mitigating the severe financial pain that would happen with another recession and stock market crash.

Under the proposal, CalPERS would begin slowly moving more money into safer investments such as bonds, which aren’t usually subject to the severe losses that stocks face. Because the more conservative investments are expected to reduce CalPERS’ future financial returns, taxpayers would have to pick up even more of the cost of workers’ pensions.

are you serious

Most public workers would be exempt from paying any more. Only those workers hired in 2013 or later would have to contribute more to their retirements under the plan.

The changes would begin moving CalPERS — which provides benefits to 1.7 million employees and retirees of the state, cities and other local governments — toward a strategy used by many corporate pension plans. For years, corporate plans have been reducing their risk by trimming the amount of stocks they hold. The plan is the result of CalPERS’ recognition that — even with significantly more contributions from taxpayers — an aggressive investment strategy can’t sustain the level of pensions promised to public workers. Instead, it could make the bill significantly worse.

At an Aug. 18 meeting, CalPERS staff members laid out their plan for the fund’s board, saying the changes would be made slowly and incrementally over the next several decades. That isn’t fast enough for Gov. Jerry Brown. A representative from the governor’s finance department addressed the CalPERS board, saying the administration wants to see financial risks reduced “sooner rather than later.” “We know another recession is coming,” said Eric Stern, a finance department analyst, “we just don’t know when.”

economicsBehind the growing cash shortfalls: the aging of California’s public workforce. As more baby boomers retire, CalPERS estimates that the number of government retirees will exceed the number of working public employees in less than 10 years. Another reason for the cash shortages: the large hike in pension benefits that state legislators voted to give public workers in 1999 when the stock market was booming.

CalPERS lobbied for those more expensive pensions. In a brochure, the fund quoted its then-president, William Crist, saying the pension-boosting legislation was “a special opportunity to restore equity among CalPERS members without it costing a dime of additional taxpayer money.” That has turned out to be wishful thinking. Now, cities and other local governments are cutting back on street repairs and other services to pay escalating pension bills.

Chris McKenzie, executive director of the League of California Cities, said governments are in the midst of a six-year stretch in which CalPERS payments are expected to rise 50%. Some cities are now paying pension costs that are equal to as much as 40% of an employee’s salary, according to CalPERS documents. The cost is highest for police, fire and other public safety workers who often receive earlier and more generous retirements than other employees. In recent years, three California cities have declared bankruptcy, in part, because of the rising costs.

McKenzie said that despite the escalating pension bills, most cities are in favor of the plan by CalPERS staff. Many city finance officials believe that CalPERS’ investment portfolio is currently “too volatile,” he said. About 10% of cities don’t support the plan, McKenzie said. “Some said they simply can’t afford it,” he added.

Representatives from two public employee labor unions speaking at the Aug. 18 meeting said they generally supported the plan. The plan must be approved by CalPERS’ board, which is scheduled to discuss it again in October.

Last year, governments sent CalPERS $8.8 billion in taxpayer money, while employees contributed an additional $3.8 billion, according to financial statements for CalPERS’ primary pension fund. Those combined contributions fell $5 billion short of the $17.8 billion paid to retirees.

At the heart of the plan is the gradual reduction in what CalPERS expects to earn from its investments. Currently, CalPERS assumes its average annual investment return will be 7.5% — an estimate that has long been criticized as being overly optimistic. After several years of double-digit returns, the giant pension fund’s investments earned just 2.4% in 2014, according to preliminary numbers released in July. Under the new plan, as CalPERS moved more money to bonds and other more conservative investments to reduce risk, the 7.5% rate would gradually be reduced.

CalPERS is still recovering from the Great Recession of 2008 and 2009, when it suffered a 24% loss on its investments. Today its $300 billion in investments is estimated to be only about 75% of what it already owes to employees and retirees. A market downturn would create an even deeper hole.

In presentations, CalPERS told city finance officials that if its investments drop below 50% of the amount owed for pensions, even with significant additional increases from taxpayers, catching up becomes nearly impossible.

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Shocker, not: Despite strong returns, California pension funds’ fiscal hole got deeper

kick the can down the road

Sacramento Bee: With a new ballot proposal reigniting debate over government retirement benefits, the latest federal figures show California’s public pension debt in 2013 stood at $4,425 for every man, woman and child in the state, despite strong investment returns by public retirement funds.

The per-capita obligation ranked 11th highest among U.S. states, according to a Sacramento Bee analysis of latest data by the U.S. Census Bureau. California’s total pension debt, $610.3 billion, is the largest in the nation.

Such statistics will likely pour into a complex debate over state and local public retirement benefits in the new few months. The ballot proposal aimed for the November 2016 election would, among other things, change California’s constitution to require that voters approve public pension enhancements. Unions oppose the measure as an attack on working people disguised as voter empowerment.

California, the nation’s most populous state, also has more government workers than any other. Nearly 1 in 10 Californians belongs to one of 85 government pension systems, according to a new report by Kevin Cook of the Public Policy Institute of California. About two in three pension members belong to either the California Public Employees’ Retirement System or the California State Teachers’ Retirement System.

Those two public pension funds, the largest and second-largest in the nation, respectively, are still recovering from the losses during the recession. Despite significant investment gains in 2013, the disparity between the plans’ obligations and the value of assets stood at $62 billion for CalPERS and $74 billion for CalSTRS.

CalPERS has since raised rates on employers in the fund, and lawmakers have approved higher contributions to CalSTRS. A 2013 law also rolled back benefits for new public pension system members.

Cook says the gap between unfunded liabilities and assets suggests that the systems “have been underfunded over time.” Retirees are living longer, further pressuring the funds, he said.

math is hard

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